What to do about Tax Havens?

I’m not crazy about the idea of wealthy people and corporations avoiding taxes by creating subsidiaries with no economic function in tax havens.  Sometimes I wonder if the budgets could be balanced if we were able to eliminate the tax havens.

So, why not have a meeting of NATO of the G-20, or even the Useless United Nations, and discuss a common strategy of dealing with rogue nations/city-states that invite people and corporations to do business through them in order to avoid taxes.

One strategy could be this: use NATO to blockade these places, and tell them to end their tax-avoidance-facilitation policies, or else.

Now that ‘s a little harsh, but almost all of the tax havens with the exception of Ireland are little places that can’t defend themselves.  But maybe there is an alternative.

The coalition of the willing would go to each of the tax havens, and make a deal with them.  “If you raise your tax rates and definition of income to our levels, we will remit foreign aid to you to partially compensate you for your loss.  Remember, we can use military or economic sanctions against you — think of Iran, or North Korea.”

Why it won’t Happen

The main reason it won’t happen is that wealthy supporters of politicians will complain, and many politicians are wealthy themselves.  Sad, but true, and it will remain so until a significant nation nears default.

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About David Merkel 145 Articles

Affiliation: Finacorp Securities

David J. Merkel, CFA, FSA — From 2003-2007, I was a leading commentator at the excellent investment website RealMoney.com (http://www.RealMoney.com). Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and now I write for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I still contribute to RealMoney, but I have scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After one year of operation, I believe I have achieved that.

In 2008, I became the Chief Economist and Director of Research of Finacorp Securities. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm.

Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life.

I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

Visit: The Aleph Blog

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